But don’t expect the city to become affordable any time soon.
s London’s great home price correction finally happening? The U.K. capital’s housing market has been notoriously unaffordable for years, but in the immediate aftermath of the Brexit referendum, there are some hints that things are about to change.
This week, the London media reported that thousands of home sales have fallen through within the past month. According to reports in The Standard, some real estate agencies are admitting that as many as two-thirds of the offers they were negotiating at the time of the June 23 referendum have since fallen through or been renegotiated, with central London prices falling 12 percent in just a month.
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Even that short blip may do little to bring buying a home within the average Londoner’s reach. Last year, a first-time buyer in London needed to earn £77,000 ($101,099) a year to afford the average cost of a starter home, in a city where the average annual wage was just £27,999 ($36,762). To be affordable on the average salary, London house prices would thus need to drop by almost two-thirds without any corresponding fall in wages—a highly unlikely turn of events. In fact, since the financial crisis of 2007, Britain has seen a 10.4 percent drop in real terms wages, the worst showing (albeit neck and neck with Greece) in the entire group of OECD countries. There is at present no evidence to suggest this trend will be reversed.
Other factors may also help to keep London housing unaffordable. Since the referendum, U.K. construction firms have lost up to 40 percent of their value, liable to make even companies in relatively good financial health less willing to build in a volatile market, thus exacerbating London’s housing shortage.
It’s nonetheless still too early to say what the long-term effects of the referendum will be on London housing, because we still don’t know what direction government action will take.
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